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Will A-Power Investors Ever Catch a Break?

The budding wind-turbine manufacturer disappoints, again.

It's been more than a year since I first wrote about Chinese alt-energy player A-Power Energy Generation Systems(Nasdaq: APWR). Here's what I said back then:

"I'm more than just a bit worried about the company's big promises on the turbine side, and want to see solid execution on that front before I promote this company from the ranks of wind wannabes."

Fast-forward a year and change, and A-Power hasn't done much to dispel my unease. The firm still isn't racking up much revenue on the wind-turbine side. Yes, there's a fittingly outsized Texas wind farm on the horizon, but A-Power isn't expecting a significant revenue contribution from that project, which is still seeking financing, until late 2011 at the earliest. A-Power recognized zero wind turbine revenue in the second quarter, and blamed permitting delays.

I would be very interested to know how many turbines the company has actually manufactured this year. This figure wasn't offered by management or requested by either of the two analysts on the conference call.

Looking forward, A-Power expects to deliver 30 to 50 units to the wind farm project by the end of the year, and to recognize revenue on the manufacture and sale of the turbines, but not on the installation and on-site construction. Assuming the company delivers 30 units, I would pencil in roughly $100 million in revenue and $25 million in gross profit for the Texas wind farm.

That leaves around $258 million in additional second-half sales until the company hits its top-line guidance of $500 million for the year. That's about what the company's core distributed generation business segment booked in all of 2009. If A-Power can't pull in a fair amount of wind revenue from its Chinese projects, I'm afraid the company might blow its guidance.

That said, A-Power is looking pretty cheap these days. The company is now valued at 0.8 times trailing sales, and those sales are almost certainly headed higher over the next few quarters. Even with Chinese small caps out of favor these days, companies like JinkoSolar(NYSE: JKS), Duoyuan Global Water(NYSE: DGW), and RINO International(Nasdaq: RINO) all trade for more than 1.5 times sales.

As long as A-Power's sales come in somewhere in the ballpark of management's guidance, investors may catch a break here. Over the long term, I'm less positive on A-Power's overall business, as noted here.